TAXES ON INCOME:

The following tables provide a summary of the current and deferred components of income tax expense (benefit) from continuing operations for the periods presented:



	Successor			Predecessor
	Period from Acquisition (March 26, 2012) to December 31, 2012			Period from January 1, 2012 to March 25, 2012			Years Ended December 31,
				Period from January 1, 2012 to March 25, 2012			2011			2010
Current expense (benefit):
Federal	$	(8	)	$	5		$	24		$	34
State	(2		)	1			(5		)	11
Total	(10		)	6			19			45
Deferred expense:
Federal	$	72		$	17		$	67		$	51
State	14			2			9			1
Total	86			19			76			52
Total income tax expense	$	76		$	25		$	95		$	97

Effective tax rate	46		%	38		%	36		%	40		%

The differences between the Company’s EITR and the U.S. federal income tax statutory rate for the periods presented were as follows:



	Successor		Predecessor
	Period from Acquisition (March 26, 2012) to December 31, 2012		Period from January 1, 2012 to March 25, 2012		Years Ended December 31,
			Period from January 1, 2012 to March 25, 2012		2011		2010
Computed statutory income tax expense at 35%	$	57	$	23	$	92	$	86
Changes in income taxes resulting from:
Non-deductible executive compensation	11		—		—		—
State income taxes, net of federal income tax benefit	8		2		3		8
Other	—		—		—		3
Income tax expense	$	76	$	25	$	95	$	97

Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The table below summarizes the principal components of the Company’s deferred tax assets (liabilities) as follows:



	Successor			Predecessor
	December 31, 2012			December 31, 2011
Deferred income tax assets:
Other postretirement benefits	$	52		$	13
Derivative financial instruments (interest rates)	13			4
Other	18			20
Total deferred income tax assets	83			37

Deferred income tax liabilities:
Property, plant and equipment	(925		)	(559		)
Other	(2		)	(7		)
Total deferred income tax liabilities	(927		)	(566		)
Net deferred income tax liability	(844		)	(529		)
Less current income tax assets	9			9
Accumulated deferred income taxes	$	(853	)	$	(538	)

As of December 31, 2012, the Company has $1 million ($1 million, net of federal tax) of unrecognized tax benefits, none of which would impact the Company’s EITR if recognized. The Company does not expect that its unrecognized tax benefits will be reduced within the next 12 months.

The Company’s policy is to classify and accrue interest expense and penalties on income tax underpayments (overpayments) as a component of income tax expense in its consolidated statement of operations, which is consistent with the recognition of these items in prior reporting periods.

Southern Union and the Company are no longer subject to U.S. federal, state or local examinations for the tax periods prior to 2004.